Christopher Liew: Tips for tackling holiday debt, including what to pay off first

(Mikhail Nilov / Pexel.com)

Christopher Liew is a CFP®, CFA Charterholder and former financial advisor. He writes personal finance tips for thousands of daily Canadian readers at Blueprint Financial.

For many, the holidays represent a time for joy, family, friends, gift-giving and gratitude. However, the financial aftermath can be stressful.

Between gift-buying, travel, special meals and last-minute surprises, it’s easy to spend far more than you originally planned. While credit cards, buy-now-pay-later services and short-term loans make holiday shopping convenient, they can also leave you with lingering debt and a hole in your wallet.

Here are some time-tested tips to help you tackle your debts, reduce interest costs, and set yourself up to avoid the same struggle next year.

Tips to pay down holiday debt faster

Most credit cards in Canada come with interest rates ranging from anywhere from 15 to 20 per cent on the low end, and reaching up to 25 per cent or more on the higher end, meaning balances that aren’t paid off quickly begin accumulating costly interest.

Buy-now-pay-later plans and other short-term financing options can also trigger retroactive interest or fees if payments are missed.

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It’s important to take control of your holiday debts the moment the new year begins. The more you let your debts sit while only making your minimum payments, the more you’ll end up paying in the long run.

1. Take inventory and prioritize debts

One of the best financial tips I give to individuals to start off their new year right is to take an inventory of their personal finances. Take an hour or so to sit down, calculate your average monthly income and take note of everywhere your money goes to, including:

• rent/mortgage payment;
• insurance premiums;
• monthly car payment;
• average monthly home/auto maintenance costs;
• credit card payments;
• loan payments;
• grocery costs;
• fuel costs; and
• discretionary spending.

Regarding holiday debts, you should specifically take time to focus on your recently accumulated personal loan, buy-now-pay-later (BNPL) and credit card balances that you may have acquired during your recent gift shopping.

Once you have a solid picture of the debt you’ve accumulated, I suggest prioritizing it. Higher-interest loans/balances, accounts with high monthly payments, or those that come with steep penalties for late payments should be your top priorities.

As such, you should create a system to ensure that these particular payments are always made on time (or early), preferably paying more than the minimum payments.

2. Focus on high-interest debts first and pay more than your minimum

Credit cards and small personal loans typically carry the highest interest rates, so they should be tackled first. The so-called “avalanche method” minimizes the total interest you’ll pay over time by prioritizing higher-interest debts and paying more than your minimum payment each month.

Continue making minimum payments on all debts, but direct extra funds toward the balance with the highest rate. Every time you make more than your minimum payment, the extra funds go straight toward your principal balance rather than interest.

3. Tighten your monthly budget

One of the best ways to ensure that you have the available funds to make more than your monthly minimum payments is to tighten your monthly spending budget.

If you’ve accumulated holiday debts and now have an extra $500 per month just to meet your minimum credit card and loan payments on time, that means you’ll need to find ways to decrease your living expenses and discretionary spending by at least the same amount, and preferably more if you want to exceed your minimum payments and knock your debt out quickly.

This is where creating a detailed budget is really helpful. The more detailed your budget is, the easier it is to find areas where you can cut and save. Some ideas include:

• eating out less and meal-prepping more;
• cutting out some of your monthly entertainment subscriptions;
• renting out a room in your home to earn extra income; and
• picking up flexible “gig economy” shifts from Uber, DoorDash, and other side hustles

4. Automate and consolidate

If you have good credit, a lower-interest consolidation loan or promotional balance transfer card could reduce your interest costs. This can simplify your life by consolidating multiple payments into one single, predictable bill. It can also help you save on interest fees if your consolidation loan comes with a lower rate.

That said, it’s important to read the fine print, understand transfer fees and avoid accumulating new debt on cleared cards.

How to avoid next year’s holiday debt trap

The best way to manage holiday debt is to prevent the problem in the first place.

One strategy is to spread gift-buying across the year by taking advantage of seasonal and clearance sales, and then setting items aside until the holidays.

Opening a dedicated holiday savings account and contributing a small amount each month can also make your end-of-the-year spending more manageable, without interfering with your monthly budget.

Additionally, setting a realistic gift budget early (and sticking to it) helps avoid last-minute emotional purchases that can strain your finances.

Final thoughts

Post-holiday debt is an unfortunate situation that many find themselves in. By acting early, prioritizing high-interest balances, and staying consistent with your payments, though, you can reduce your overall interest costs and regain control.

With that in mind, it’s important to use this experience to plan ahead for next year’s holiday spending so you can prevent the same cycle from repeating. A little preparation goes a long way, shouldn’t affect your day-to-day finances, and will set you up for success the next holiday season.

More from Christopher Liew:

• Five smart money moves to start 2026 right
• Why most financial new year resolutions fail
• Are GICs still worth it? What Canadians are choosing instead
• Not all banks are created equal. Here’s how to choose wisely